CA Foundation · Business Economics · Business Cycles
Which of the following best describes the 'trough' phase of a business cycle?
The trough is the lowest turning point of a business cycle. At this stage the contraction ends, output and employment stop falling, and the economy starts moving into recovery. The highest point of activity is the peak, not the trough, and long-term growth refers to the trend.
- AThe point at which output and employment reach their highest level
- BThe lowest turning point where economic activity stops declining and begins to recoverCorrect
- CThe phase where inflation is at its peak and credit is tight
- DThe period of steady long-term growth in potential output
Explanation
A trough is the bottom of a cycle, where the contraction ends and recovery begins. The peak is the highest point of activity, so the first option describes a peak. Long-term growth in potential output is a trend, not a cyclical phase.
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